Queensland land tax imposes a new national tax

Queensland’s government proclaims in the spirit of the state’s long-standing fiscal tradition that it “is committed to no new or increased taxes” and to its tax take being below the average of other states.

Taxpayers would be relieved to hear of this commitment, but it is difficult to reconcile with the Queensland government’s recent tax policy actions, which have included a new payroll tax levy and a new land tax provision — not to mention a large hike in coal royalties which, although not technically a tax, certainly feels like one to those paying it.

The key to this contradiction is that the “no new or increased taxes” commitment is subject to so many, and such malleable, escape clauses that it is worthless. Taxpayers can take no comfort from it.

The government justifies the new payroll tax levy on the grounds that it is earmarked for increased mental health funding. But there is no connection between payrolls and mental health expenditure. Any tax increase could be dressed up that way by making a spurious link to any increase in government spending

The government’s stated justification for the land tax change is also spurious.

Up to now, land tax in Queensland, as in other states, has been calculated only with reference to the value of land held in Queensland, without regard to land held anywhere else. You may think this makes perfectly good sense for a state — not national — land tax, but not the Queensland Treasurer Cameron Dick, whose discovery of a “loophole” is his cover in this instance for deviating from the “no new or increased taxes” pledge.

The change, which takes effect in 2022-23, defies a simple description. Increased complexity is one of the issues it raises, apart from the sheer cost to the taxpayers affected.

Basically, the change is that the Queensland authorities will factor in the value of land held outside Queensland in calculating how much a taxpayer owes. For example, if someone owns $500,000 in taxable land value in each of Queensland and Victoria, their Queensland land tax bill will be half what it would be if they held $1 million of land value in Queensland alone.

While this may seem unexceptional, it dilutes the value of the Queensland tax-free threshold to those affected. This will result in very large increases in land tax for many individuals and businesses. In the above example, the landowner would currently pay no Queensland land tax because of that state’s tax-free threshold, but in future will pay half the land tax on the difference between $1 million and the tax-free threshold.

State land taxes have never, in the more than 100 years they have existed, taken into account anything other than land values within each state. So if there was a “loophole”, Queensland was pretty slow to do anything about it.

A national land tax would be based on a taxpayer’s land holdings across all states and territories, but Australia has not had such a tax since the federal government withdrew from the field in 1952.  If that was when the “loophole” opened up, then it has still taken Queensland governments 70 years to close it.

The reality is that it is not a loophole at all, but a deliberate and obvious design feature of state land taxes, which are taxes on the value of land within each state, subject in all states to a tax-free threshold and wide exemptions such as for principal residences and agricultural land.

Mr Dick is redesigning his land tax, not closing a loophole.

It is the tax-free threshold that irks Mr Dick, as it enables landowners with holdings in multiple states to benefit from the threshold in each state. This would not happen under a national land tax, but instead of proposing a national approach, Mr Dick has chosen to go his own way and scoop up some extra revenue for Queensland.

This will only work if the tax administrations of other states agree to pass information on landholdings in their states to their Queensland counterparts. It will be fascinating to see whether they do this, and whether other state governments even decide to copy Queensland’s approach and take into account land held in other states. If they all did so, the array of state land taxes would approximate a national land tax, albeit in a messy and complex way.

Some economists advocate replacing state land taxes with a national land tax. Perhaps Mr Dick is trying to force the issue with his go-it-alone approach, but this seems unlikely. It is just another revenue grab by another government that can’t control its urge to spend more. Moreover, the states must have some taxes of their own and land tax is one of the better taxes to be assigned to them.

Queensland’s new land tax law may well be challenged in the High Court. The constitution does not allow one state to tax something in another state. Queensland is not doing so in the legal sense because its land tax will still be based on land value within the state. But the economic reality is that it will impose land tax at a higher rate if an owner of land in Queensland also owns land elsewhere in Australia. In effect that could be deemed to be a tax on land held outside Queensland.

Thousands of taxpayers affected by the change are enraged, but Mr Dick is counting on escaping the wrath of most Queensland voters. Although Queenslanders with taxable land both in their own state and somewhere else in Australia will be adversely affected, there are many more investors in other states with taxable land in Queensland. It is non-Queenslanders that will be coughing up most of the extra land tax.

Such tax-shifting is a short-sighted, cynical and opportunistic action that will eventually take its toll on private investment in the state.

Queensland’s land tax increase is imaginative. It’s just a pity they are not as imaginative in finding ways to control state government spending.

Robert Carling is a Senior Fellow at the Centre for Independent Studies and a former World Bank, IMF and federal and state Treasury economist.